Silicon Valley from above

Silicon Valley from above

Through a range of partnerships and acquisitions, banks have spent years preparing for, and to an extent fending off, competition from small, nimble technology start-ups by using some of their innovations.

The greater threat however has arguably been from established tech giants such as Facebook, Amazon and Alibaba – steadily expanding from one industry into another, delighting clients, and blurring boundaries between sectors and services. 

Tech firms have the capabilities necessary to reorder global commerce into ecosystems in which they provide a variety of financial products and services through a single gateway portal. Indeed, concern among the wealth management community is growing as watchdogs in the US signal that banks are likely to see more Silicon Valley competition.

Facebook, for example, already offers users the ability to make payments and, according to some, may displace financial advisors in the not so distant future. Stuart Newey, Managing Director and Head of Banking at Coutts, believes that a combination of the rise of robo and the changing habits of millennials mean that social media platforms like Facebook have the potential to become major players in the financial advice market.

Indeed, because millions of millennials already use and trust the social media platform, displacing traditional advisors is not an insurmountable task. Moreover, its investment in new technologies such as virtual reality could ultimately revolutionise many aspects of the financial advice journey for clients – from way they bank and speak with their advisor, to the way they learn about money management.

In Asia, firms like Alibaba have made the most headway and digital upstarts in China are grabbing huge chunks of market share from banks (including 25% of unsecured consumer lending and 12% of mutual fund sales). Others are starting serious discussions with banking regulators about the future of financial innovation.

Amazon, for example, has partnered with UBS to pilot a new service called ‘Ask UBS. The technology allows customers to ask their Alexa-enabled device financial questions such as “What is inflation?’ and “How is the economy doing?

According to Dirk Klee, COO of UBS Wealth Management, the service “could become an innovative way to cut through the jargon clutter [that clients so often loathe] and bring financial expertise in a new and appealing way directly into people’s lives.”  Crucially, the service is also likely to improve client experience, help the bank engage with a new generation of wealth management customers, and provide Amazon with troves of new data.

However not all are bought into the near term power of the tech giants. David Bellamy, Chief Executive of St James’ Place, doubts that millennials would actually trust the likes of Facebook to the extent that it would win significant market share in the lucrative advice market. Others cite red tape and heavy regulation as barrier to entry against tech firms.

Such arguments are fallible and – at best – temporary. There’s no denying that tech firms have quality data and insights at their fingertips and know (better than banks) how to stay relevant to their clients. Moreover, as they extend their influence and reach, the position of regulators could evolve to create a more level playing field.

Moving into banking therefore becomes a matter of when, not if, so the industry shouldn’t delay its digital transformation.

Read our earlier thoughts on the future of Google Wealth here.


Thought for the week:

“There are no boundaries or borders in the digital age.” – Karim Rashid

News from the world of wealth:

Banks meet global surge in demand for green bonds – FT

EU ambassadors back compromise on bank rules – Politico Pro

The key to platform value for money – MoneyMarketing

Nasdaq faces concerns about its data products – Business Insider

IMF says EU needs to prepare for next economic downturn – Bloomberg


egfAuthor: Jenny Kvaskova, Senior Analyst

Background: Prior to joining the Scorpio team, Jenny worked at UBS Investment Bank in New York. She has also worked at FreshMinds, an insight and innovation consultancy in London, where she was involved in a range of financial services projects.

Education: Jenny holds a BSc in Economics and International Development from the University of Bath.

And at the weekends: Jenny is usually outdoors, eating her way through London markets and living out her favourite inspirational quotes.




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